Troubled Homeowners Can Avoid Foreclosure with New Mortgage Modification Program

By Charlene Crowell, Contributing Columnist

Published April 28, 2016

Charlene Crowell

Since 2004 approximately 8 million homes have been lost to foreclosure, according to CoreLogic, a national mortgage data firm. Although the number of homeowners entering foreclosure has fallen dramatically since the height of the crisis, 434,000 homeowners remained in some stage of foreclosure in February.

Serious mortgage delinquency, a key indicator of future foreclosures still affects 1 million home loans, despite having dropped to a national average rate of 3.2 percent. In some states and metro areas, mortgage delinquencies are more than double that of the national average.

Florida, Mississippi, New Jersey, and New York are all states with serious mortgage delinquencies – 90 days or more in arrears – of at least 5.0 percent or higher. Similarly, some of the nation’s largest metro areas — including Chicago, Las Vegas, Miami, and New York City – have serious delinquency rates ranging much higher than the national average or the cited states. In the Miami metro area alone, serious delinquency is 6.9 percent.

On April 14 and in an effort to help troubled homeowners keep their homes, the Federal Housing Finance Agency (FHFA) announced a one-time, limited offer. The Principal Reduction Modification program is designed to help homeowners who are 90 days delinquent or more and owe more than their homes are now worth, often referred to as being “underwater”. FHFA estimates that 33,000 homeowners will be eligible for the program.

“The national housing market has significantly improved in recent years but there are still areas of the country where home values have not recovered and negative equity remains a real problem,” said FHFA Director Melvin L. Watt. “This plan will no doubt be viewed by some as too small and too late and viewed by others as too large and unnecessary. However, the plan is consistent with FHFA’s statutory obligation to ‘maximize assistance for homeowners’ by providing some borrowers what could well be their final opportunity to avoid foreclosure,” added Watt.

To be eligible for this limited program, mortgage borrowers must meet all of the following criteria:

Have a home that is owner-occupied with a first-lien mortgage that is owned or guaranteed by either Fannie Mae or Freddie Mac;

Be delinquent by 90-days or longer as of March 1, 2016;

Owe an outstanding balance of $250,000 or less; and

Owe at least 115 percent or more of the home’s value.

Borrowers meeting all criteria and successfully completing three timely trial payments and returning completed final modification documents, will then be eligible for a loan modification that will:

Reduce the loan’s interest rate;

Extend its term up to 40 years; and

Receive partial loan forgiveness.

“Despite improvements in the overall housing market, there are still many homeowners who continue to face hardship in making their mortgage loan payments, and are deeply underwater on their home loans,” said Mike Calhoun, President of the Center for Responsible Lending. “These conditions are concentrated among homeowners with modest homes and located in low and moderate income neighborhoods. Families and communities of color are particularly facing these hardships.”

FHFA advises that borrowers who may have questions about the program should contact their servicers, the firms to which mortgage payments are sent. Servicers have until the end of 2016 to reach borrowers who are potentially eligible for this modification program.

According to the U.S. Census Bureau, Black homeownership as of the end of last year was the lowest of all races and ethnicities at only 41.9 percent while more 72 percent of Whites owned their homes. Prior research and analysis also showed that consumers of color were often targeted for high-cost, unsustainable loans when many actually qualified for lower-cost loans.

“Homeowners, communities and taxpayers will all benefit from FHFA’s new program,” concluded Calhoun.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

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